competitive solar energy & finance solutions seminar for the gcc solar finance dubai - april 14,...

Competitive Solar Energy & Finance Solutions Seminar for the GCC

Solar Finance

Dubai - April 14, 2014Alberto Pisanti Managing Partner & CEO

2

Background for Investing / Financing Solar PV Project

The Solar Business Model in Europe – Lessons learned

The Solar Business Model in the GCC – Expected evolution

Structuring a PV Project

Skills needed to succeed in this market

Agenda

Investment Merits of Solar PV

Proven technology

3

Comfortable risk profile

Stable and predictable cash flows

Weak correlation with Equities

Upside potential

Solar PV plants can count on: very limited development and construction risks no price risk, as feed-in-tariff / PPA are stable for 20+ years limited volume risk thanks to (i) priority of dispatch of 100% of electricity produced, (ii) low volatility of

irradiation in the long term and (iii) operational simplicity and stability

Sector has extremely low operational risk with leading EPC and O&M operators guaranteeing performance/ yields and insurance companies covering all other risks

Low / No correlation with the Equity markets

Important upside potential from operational improvements, revamping, concession renewal (>20yrs)

Solar PV is a mature technology today with almost 100 GW installed and operational worldwide Sector has achieved critical mass and is well along the experience curve Operational risks are limited while operational improvements are still underway Solar Irradiation has very low volatility especially in the long term

Cash

Fixed income

Infra assets

Equities

Source: Lazard AM

Ret

urn

Risk

Private Equity

Solar PV represent a very attractive and flexible solution for different investment styles…

…and is now becoming a New Asset Class tailored on the Institutional Investor needs

4

Positioning Solar PV Investments in the Risk/Rewards Pyramid

SPECULATIVE

Development, E&P, Venture Capital, Derivatives

Gem stones, Art, Metals

GROWTH

Equity (Direct Investments), Growth Stocks, Real Estate (construction), Non Regulated Businesses,

Sub-Investment Grade Bonds / Debt

SECURE / INCOME INSTRUMENTS

Conservative Equities (Regulated Businesses), Preferred Stocks, Investment Grade Corporate Bonds/Debt ,

Municipal Bonds, Convertible Securities

CASH AND CASH EQUIVALENTS

Cash, Government Bonds (Investment Grade), Money Markets Funds, Life insurance, Pension Plans, Term Deposits, Saving Accounts

Risk

Lower

Highe

r

Potential Reward

Higher

Lower

$

$$

$$$

?

?

?

Capital Availability

PV Risk / Attractiveness Drivers: Mature vs Developing Markets

Economic and demographic outlook

Growth in electricity demand

Existing electric generation capacity

Transmission grid infrastructure

Energy mix

Level of renewable resources

Availability of fossil fuel resources

Presence of renewable energy targets

Status of REn legal and regulatory framework

Availability of land

Financial sector, market depth and thickness





Energy mix







M D

- +M = Mature markets D = Developing economies

M D

M D

M D

M D

M/D

D M

D M

M D

D M

Degree of Attractiveness for PV Investments

D M

EXIT

6

PV development to date in Europe

Main drivers

Climate change

Energy security

Political support (carbon reduction targets, occupational goals…)

Climate change

Energy security

Political support (carbon reduction targets, occupational goals…)

Countries Developed countries, mainly Europe Developed countries, mainly Europe

Model

Bottom-up

Disorderly development

Evolving support schemes ie changing FiTs to track cost evolution

Bottom-up

Disorderly development

Evolving support schemes ie changing FiTs to track cost evolution

Finance Disorder = Risk = Equity (vs. Debt)

Financial crisis further crunched Debt

Disorder = Risk = Equity (vs. Debt)

Financial crisis further crunched Debt

OPERATIONS CONSTRUCTIONDEVELOPMENT

FULL EQUITY MAINLY EQUITY Industrial players EPCs with

guaranteed off-takes

EPCs on-balance sheet

BANK FINANCING Project Finance Leasing

PORTFOLIO REFINANCING Project Finance BondsASSET CLASS FOR INSTITUTIONAL INVESTORSIPO/ YIELD COs

Debt often unavailable or took too long to structure generating FiT risk

Mainly policy driven with little economic sense

Exit

The Solar PV Project Life Cycle in Europe

Portfolio ofOperating Assets

OperationalUnder construction

Fully PermittedReady to build

Pre- consent

Solar PV investment cycleSolar PV investment cycle

€ €€€

25%+ 15-20% 8-15% 10% 7-10%

€ €

There is a significant change in risk and resulting yield compression progressing along the life cycle of renewable energy projects from development to operation

There is a significant change in risk and resulting yield compression progressing along the life cycle of renewable energy projects from development to operation



Value Creation* (IRR unlevered)


7

* Values are ball park figures based on investments carried out in Italy 2009-12

Relatively new technology Smaller scale projects – many developers Scarcity of debt available

2x

Very high arbitrage opportunities resulting in very interesting investment multiples

Entry and Exits of Main Solar PV Actors in Europe

8

Final Off takers:• Pension Funds• Insurance Co• Capital mkts

Consolidators:• Industrial players• PE Funds• Infra Funds

Developers

Bridge Capital Providers: EPC Tech Suppliers/ Manufacturers Industrial players Financial players

ExitPortfolio ofOperating Assets



Pre- consent

PV Risk / Attractiveness Drivers in the GCC

= GCC

- +Degree of Attractiveness for PV Investments





Energy mix











Energy mix







Sunbelt region with high opportunity cost of fossil fuels

10

PV development envisageable in the GCC

Main drivers

Technology driven cost reductions

Abundant resource availability

Economic development and occupational targets

Peak oil

Technology driven cost reductions

Abundant resource availability

Economic development and occupational targets

Peak oil

Countries GCC region GCC region

Model

Top-down

Structured and rapid development (tender processes...)

PPA based (no incentives, greater sustainability)

Top-down

Structured and rapid development (tender processes...)

PPA based (no incentives, greater sustainability)

Finance Order = Risk = Debt (vs. Equity)

Plenty of capital available also from Gov. and Multilateral agencies

Order = Risk = Debt (vs. Equity)

Plenty of capital available also from Gov. and Multilateral agencies

EQUITY MAINLY DEBTFavored by: clear timing PPAs Experience and

resulting lower construction risk

EXIT OPERATIONS CONSTRUCTIONDEVELOPMENT

MAINLY TO INSTITUTIONAL, LOCAL OR INTERNATIONAL, FINANCIAL INVESTORSThrough debt-like instruments (vs. equity): Pension funds Insurance Co’s

Large strategic and economic sense

Plenty of Debt available in the form of highly leveraged structures where equity control remains firmly in the hands of strategic local investors

Exit

The Solar PV Project Life Cycle in the GCC

Portfolio ofOperating Assets



Pre- consent

Solar PV investment cycleSolar PV investment cycle

€ €€€€ €Capital Availability




11

* Values are ball park figures based on investments carried out in Italy 2009-12

7-10%10%25%+ 15-20% 8-15%

Market evolution – no longer an “experiment”

Larger Tender processes vs small developments

Consolidation along the value chain

Larger scale play from the outset – developers and construction players may coincide

Value creation in the development will be lower and higher in the LT holding to be aligned to the Region’s IRR targets

???

Exit multiples will be dependent on the ability to attract Local and International Institutional Investors / Debt providers with reduced IRR targets and appetite for cheaper debt/quasi-equity instruments

Entry and Exits of Main Solar PV Actors in the GCC

12

Final Off takers:• Pension Funds• Insurance Co• Capital mkts

Consolidators:• Industrial players• PE Funds• Infra Funds

Bridge Capital Providers: EPC Tech Suppliers/ Manufacturers Industrial players Financial players

ExitPortfolio ofOperating Assets



Pre- consent

Developers / Construction companies

13

SINGLE ASSET SALE

TRADE SALE

CONTRIBUTION TO MUTUAL FUND

PLAIN VANILLA IPO

YIELD CO’s

SUKUK

Multiple Investment Exit Options

Great opportunity to leverage,

extract all equity,

while maintaining firm control of

the assets

14

Structuring a PV Project

Project Finance Lenders

Senior loan

Local Developer/Investor

EPC contractor

O&M operator

EPC contract

PPA with State owned entity or

Private

Electricity saleO&M contract

Insurance company

Insurance contract

Solar SPVSolar SPV

15

Solar Operating Company or

Consolidated Operating Portfolio





Private

1

Structuring a PV Project – Development/Construction/Consolidation

16





Local Developer/Inve

stor


Private


2






Private

In time, restructure equity

ownership through emission

of debt-like instruments

(or yield co. type floating)

with full or partial exit

mainly of “non-strategic”

shareholder/s

Structuring a PV Project – Capital Restructuring

17






stor


Private


stor






Private

3






Private


Diffused ownership on Capital Markets


Structuring a PV Project – final ownership structure

18






stor


Private


stor






Private

3 bis






Private



Diffused ownership on Capital Markets Diffused ownership

of equity

or

of debt

Bond/ bond-like debt with diffused underwriting

Bond/ bond-like debt with diffused underwriting

Structuring a PV Project – final ownership structure

19

Skills needed to Succeed in this Arena

Skills along the entire investment value chain

Experience and flexibility to ensure rapid time-to-market in development phases once market rules have been set and capital is available to be employed

Know how - to be transferred locally - to ensure sustainability and growth (organic and through acquisitions) of operating portfolio

M&A capabilities to consolidate portfolio

Practice in professional plant management in order to realize upsides

Competence in financial structuring

Familiarity with international investment community

Awareness of strategic value of energy investments as best basis for dialogue with local authorities and guarantee of long-term success of investments in solar power production

Skills along the entire investment value chain

Experience and flexibility to ensure rapid time-to-market in development phases once market rules have been set and capital is available to be employed

Know how - to be transferred locally - to ensure sustainability and growth (organic and through acquisitions) of operating portfolio

M&A capabilities to consolidate portfolio

Practice in professional plant management in order to realize upsides

Competence in financial structuring

Familiarity with international investment community

Awareness of strategic value of energy investments as best basis for dialogue with local authorities and guarantee of long-term success of investments in solar power production

A shared entry to exit project vision

and partnership between capital

and competences

Alignment of interests in the long-

term

Successful partnership model with Local Partners

20

Local Partner

Strong origination and structuring capability

Centralised relationships with– Construction companies– Lenders– Technology Suppliers

(solar panels, etc)– Best-in-class legal and

technical advisors

Know how transfer of expertise to local developer with continuous interaction for best results

Ability to optimise the capital structure reducing the average cost

Site screening

Pipeline early development / Government access

Relationships with – local authorities – civil contractors– local environment

Local employees and on-the-ground experience

Combining a global

approach with a local reach

A Unique Platform to Invest in Renewable Energy «Bridging the Gap between Projects and Capital»

Alberto Pisanti Helen Mainardi Rosenthal

Managing partner & CEO Capital Raising & Investor Relations

Direct line: +44-207-036 9601 Direct line: +39-06-8967-1586

Absolute Energy Capital LLP Absolute Energy Servizi S.R.L.

100 Pall Mall Via Bertoloni 41

London SW1Y 5NQ 00197 - Rome

competitive solar energy & finance solutions seminar for the gcc solar finance dubai - april 14,...

Documents

pv investments d

d md d

yrs solar pv

pv development

risk private equity

potential solar pv plants

mature markets d

low operational risk